In present electronic commerce transactions, buyers may pay for goods and services by presenting the seller with a payment card number, e.g., a conventional credit card number. Because the buyer and seller are connected solely through a computer network (e.g., the Internet), it is not possible for the buyer to authenticate himself as the legitimate cardholder, nor can the buyer sign the sales draft. Thus, the seller honors any valid credit card number that is presented, creating a large opportunity for fraud.
Worse yet, other forms of payment such as debit cards are not presently viable on computer networks. Debit cards require the cardholder to enter a personal identification number (“PIN”), which is used to authenticate the transaction to the cardholder's bank. However, entering a simple PIN on a networked computer poses a substantial security risk—if the PIN and the debit-card number fell into the wrong hands, the cardholder's bank account would be completely compromised.
Thus, with respect to both conventional credit and debit cards, authenticating a cardholder on the network with a solution that is simple, secure, and easy to deploy remains an important unsolved problem.
Digital signature technology offers one means of authenticating the cardholder with a high degree of security. In this technology, each cardholder owns a pair of keys—a signature (private) key and a verification (public) key. The cardholder signs a transaction with his private key, and then sends the transaction, the digital signature, and (optionally) his public key to the merchant. The merchant forwards these items to the bank (or other financial institution), and the bank honors the transaction if the cardholder's public key verifies the cardholder's digital signature.
One security advantage of digital signatures is that the private key of the cardholder typically remains in possession (or at least control) of the cardholder. Thus, there is no inherent risk associated with a transaction that would compromise future transactions. One disadvantage of the digital signature method described above is that banks and transaction processors would have to change their existing infrastructure to allow digital signatures to flow through their networks. This infrastructure change would basically require a substantial overhaul of the present electronic banking and transaction processing system, which is costly and difficult to achieve.
Thus, there is a need for a method and system that offers the security advantages of digital signatures without necessarily requiring significant changes in the banking and processing network.